Securitisation (CMU)

The key initiative within the CMU project is to revive and assure “high quality” securitisation. Securitisation is the practice of pooling together and repackaging a number of loans granted by a bank and issuing tradable debt securities (such as bonds) sold to investors.

In December 2014, Finance Watch published a position paper on the European Commission's Long-Term Financing initiative, “A missed opportunity to revive “boring” finance?”, which includes a detailed assessment of the ongoing push to revive securitisation.

Finance Watch is concerned about the consequences of a revival of securitisation. This technique was at the heart of the financial crisis, as it enabled banks to transform bad quality subprime loans into AAA rated securities. As the securitisation process (repackaging, designing the new securities to be issued and providing guarantees) is done by investment banks, reviving securitisation will implicitly promote investment banking activities relative to traditional relationship banking in Europe.

The current promotion of non-bank lending via Capital Markets Union will lead to a more collateral-intensive financial system, since the revival of securitisation will create more high quality liquid securities that can be used as collateral. This makes it all the more urgent to address the negative externalities and systemic concerns related to this practice.